Oil prices reach a 2.5-year high amid Middle East turmoil

Oil prices hit a two-and-a-half year high on Thursday, but pulled back late in the session. Brent crude closed at $111.36, up 11 cents while West Texas crude, the US benchmark, closed at $97.28, down 82 cents.

Brent crude, the European crude oil benchmark, reached a 2 ½ year high of $119.79 amid political turmoil in the Middle East, but closed slightly lower on the day after the Saudi's announce they can make-up for Libya's lost supply, where output had been cut up to 1.2 million barrels per day (b/d), about three-quarters of the country's total. An interesting infographic on Libya's oil output is provided by the Globe and Mail.

Saudi Arabia and a group of major oil-consuming nations both said the world has plenty of oil on hand to replace the lost production from Libya, reports the Wall Street Journal. A senior Saudi petroleum official said the kingdom is in talks with refiners about "whether they need extra oil, and if so, what quality and quantity and on what kind of time scale." He added: "We can supply it immediately." The calming statements helped to stop a two-day surge in oil prices triggered by the latest unrest.

“It seems now that the risk to the market is really very small,” said Tetsu Emori, a commodity fund manager with Astmax Ltd. in Tokyo. “The U.S. has said that their oil security is OK and the Saudis will secure supply. Oil supplies should be secured by other countries as long as the disruptions are limited.”

However, there is still worry that political turmoil will spread to other oil exporting nations, Saudi Arabia in particular. A disruption to Saudi oil supplies would be a worse case scenario for oil prices, according to The Economist. The Saudi government announced $36 billion in benefits to it people just this week. Saudi Arabia produces 8.3 million b/d, about 9.5% of the world's daily consumption of 88 million b/d, and is the world's third largest oil producer.